Borrowers face new credit risk check

A draft law seeks to create a public-private company to process the personal credit histories of all loan applicants in the UAE.

Obaid Humaid al Tayer, the Minister of State for Financial Affairs, participated in the Federal National Council session today.

ABU DHABI // Every person seeking a loan in the UAE would be subject to a credit check under a draft law approved by the Federal National Council yesterday to create a federal credit information company. If passed by the Supreme Council, as expected, the law will regulate the request, gathering, analysis, use and protection of credit data. Employers, banks and financial institutions would feed the company data to help analysts decide how to rate a person or a company.

Obaid Humaid al Tayer, the Minister of State for Financial Affairs, told the FNC members yesterday that 45 per cent of the credit company would be owned by the federal Government while the rest would be owned by both local governments and the private sector. Involving the private sector "goes along with best international practices and standards", he said. The draft legislation was designed to decrease the number of unpaid loans and help financial institutions make decisions on whether or not to grant them, according to the FNC's financial, economic, and industrial affairs committee, which made changes to the draft submitted by the Finance Ministry.

Hamad Hareth al Madfaa, the committee's chairman, said the law was late in coming. For decades, he said, banks have been giving loans to individuals without access to a detailed credit history for their clients. Some people exploited the system by taking a number of loans from several banks and never paying them off. Some were able to flee the country without paying back their loans; others ended up in jail when they were unable to meet payments.

Financial experts have been calling for the establishment of a government-run central data base that would make credit information to available to banks and financial institutions. At present, the Central Bank is the only federal body that provides data on credit history, but it does so only for loans exceeding Dh500,000 (US$136,000). In 2006, the Dubai Government's department of economic development launched Emcredit, the first independent credit information company in the UAE.

Last April, the FNC advised the federal Government to speed up the establishment of an independent credit bureau. But the new bill drafted by the Ministry of Finance calls for the creation of a partially government-owned company rather than a bureau. During the same FNC session in April, several members criticised the Central Bank for "standing still" and watching some banks give out loans that in some cases amounted to 55 times the borrower's salary. In 2007, about 560,000 people borrowed nearly Dh700 billion in the UAE.

Ahmad Shabib al Dhahiri, an FNC member from Abu Dhabi, tried to be reassuring about privacy protection, saying that the new company would provide only credit information, not personal financial details, to lenders. "If Visa calls the company and say that this person is applying for a Dh50,000 credit card, the company would possibly tell them that the person can only afford Dh30,000," he said. The law stipulates that potential borrowers must give their written consent before their credit history is divulged.

Mr al Dhahiri added that the new company would not be able to provide details on a person's financial history outside the UAE unless and until the company entered agreements with international credit-rating firms. The bill also suggests that no individuals or enterprises be allowed to divulge credit information except to the new credit-rating company. An eventual appendix to the law would detail the type of financial institutions and banks that would be able to request credit history from the federal company.

The Central Bank would be tasked with monitoring and introducing regulations to govern the credit company. The law would provide for tough penalties on anyone disclosing credit information to unauthorised parties or who illegally access the credit database. The punishment could include either imprisonment of up to two years or a fine of at least Dh50,000, or both. [e-mail]